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Greece's Papandreou urges Germany to back bailout fund

Greek Prime Minister George Papandreou urges business leaders in Europe's economic powerhouse not to give up on his country. He touts Athens' 'superhuman effort' to rein in its budget deficit.

September 27, 2011|By Henry Chu, Los Angeles Times
  • Angela Merkel, Germany's chancellor, left, speaks with George Papandreou, Greece's prime minister, during the BDI federation of German industries conference in Berlin, Germany, on Tuesday, Sept. 27, 2011.
Angela Merkel, Germany's chancellor, left, speaks with George Papandreou,… (Michele Tantussi / Bloomberg )

Reporting from London — With several European countries facing key votes this week on a bailout plan for the weakest links in the Eurozone, Greece's prime minister made a high-profile pledge to German industrialists that there would be no letup in his country's reform efforts.

But even if the plan is confirmed by skeptical parliaments in Finland on Wednesday and Germany on Thursday, it is likely to be insufficient. And there is no consensus on what to do next.

Greek Prime Minister George Papandreou traveled to Germany on Tuesday to urge business leaders in Europe's economic powerhouse not to give up on his country. He touted Athens' "superhuman effort" in cutting public spending to rein in its budget deficit, comments clearly aimed at German lawmakers who will vote on a plan to beef up Europe's financial rescue fund and pave the way for a second Greek bailout.

"What we are doing is nothing short of the rebirth of a nation," Papandreou said, pointedly comparing his country's situation with the reunification of Germany after the fall of the Berlin Wall. "I can guarantee that Greece will live up to all its commitments. I promise you we Greeks will soon fight our way back to growth and prosperity after this period of pain."

Papandreou's speech was part of a public relations offensive by his government as lawmakers around Europe decide whether to strengthen the rescue fund and grant it greater powers to prop up debt-ridden nations.

European leaders agreed to the plan in July. But it is subject to approval by the parliaments of all 17 Eurozone countries, some of which are hostile to the idea of bailing out neighbors they consider fiscally reckless, even though failure to do so could set off an explosive chain reaction throughout the global economy.

On Tuesday, Slovenia's parliament ratified the plan, despite some concern that a domestic political crisis there might scuttle the vote.

Papandreou's earnest sales pitch in Berlin, before a meeting with German Chancellor Angela Merkel, was testament to the fact that, as Europe's paymaster and biggest economy, Germany remains the key to any solution.

The Greek prime minister received a mixed reaction; audience members applauded his pledges to cut deficits and remake the Greek economy, but at other times sat stony-faced.

At the same meeting, Merkel reiterated her promise to do "whatever Germany can" to get Greece back on its feet and to save the euro.

But in spite of that pledge, Europe remained no closer to announcing new measures to mollify investors worried about huge piles of public debt, and Merkel herself continued to rule out bold steps advocated by many analysts. On Tuesday, for example, she repeated her opposition to issuing common "eurobonds" backed by all Eurozone nations.

European officials are also trying to downplay a new idea making the rounds: enlarging the bailout fund's capacity from about $600 billion to a whopping $2.7 trillion. Economists have proposed a number of ways to achieve such an impressive multiplication, including leveraging the amount already on tap or giving the fund nearly unlimited borrowing access to the European Central Bank.

The idea appears to have emerged from an international meeting of finance ministers last weekend in Washington; it may even have originated with U.S. officials.

Such plans, however, spark heated opposition among many in Europe, especially in the northern countries that lecture their free-spending southern neighbors on moral hazard. German, Dutch and Finnish officials have all denied that such an option is on the table.

Merkel has advocated a step-by-step approach that recognizes the political difficulties of getting so many countries to sign off on a unified plan of action. However, her approach has failed to satisfy investors or critics, and pressure is building for more drastic action.

European officials have not yet decided whether to disburse Greece's next batch of rescue loans from its original bailout package last year, an $11-billion infusion Athens needs to pay its bills past mid-October. International finance officials have demanded clearer signs that Greece is truly making the cuts necessary to meet its deficit-reduction targets.

On Tuesday, Greek lawmakers narrowly approved a controversial property tax recently proposed by the government to generate more revenue.

In Berlin, Papandreou pleaded for patience and for some recognition of what Athens has already done to make amends for its fiscal indiscipline.

"That is why the persistent criticisms leveled against Greece are deeply frustrating, frustrating not only at the political level, where a superhuman effort is being made to meet stringent targets in a deepening recession, but frustrating also for the Greeks who are making these painful sacrifices and difficult changes," Papandreou said.

"We are not asking for applause," he said. "We are not even asking for people to say that this is going to be an easy project. We need years to make these major changes."

henry.chu@latimes.com

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